Welcome back to the game Nvidia (NVDA) . The company avoided disaster by posting earnings per share of $1.24, a dime better than expectations. Revenue nudged past the consensus estimate as well. I don't think I've exaggerated when I say disaster. If Nvidia missed with an offer of tepid guidance, or worse, no guidance, then I think we'd be looking at the $120s today.
That being said, I'm not sure the results yesterday were cause for celebration. Today's action is a combination of relief and a strong market. Nvidia may be back in the game, but they aren't the star again. At least not yet. Yes, the company did exceed estimates, but the overall results are still somewhat meh. Data center revenue fell 14% year-over-year, while Gaming, the lifeblood of Nvidia, fell 27% year over year to $1.31 billion. Roughly half the company's quarterly revenue came from gaming driven by the RTX lineup.
Ray tracing is the main focal point in the RTX lineup. It takes graphics to the next level, but the trade-off is slower frames per second. The question on my mind is will core gamers be willing to make that sacrifice. Early indications are sales for RTX are strong, but I worry the initial buzz could fizzle in a similar way movies can be front-end loaded. It's possible RTX is front-end loaded.
Another concern with this quarter is the beat stemmed from strong automotive results, but the big 30% year-over-year jump benefited from a non-recurring engineering project. In the same way we often case aside one-time losses, the same consideration should be applied here. Without this single project revenue may have come up short and earnings simply inline.
Management does project a margin recovery in Q3, so that's not only a big plus for Nvidia, but the sector in general. Unfortunately, a big boost in margins wasn't enough to raise guidance next quarter. Revenues look to be just shy of Q3 expectations, however, the range is close. Nvidia could miss by 1/2% or 4.5% based on their current range. One's a rounding error. The other is an issue.
The stock hasn't typically performed well in the three weeks following a positive post-earnings move, so I don't know that I'd chase. Furthermore, the weekly chart puts today's price about halfway between support ($140) and resistance ($172). Secondary indicators have a slight lean bullish, but whether bullish or bearish, I'd keep a close eye for a turn higher or lower. The slight lean could reverse or continue here. I think they will lead price, so watch to see whether they resolve with bearish crossovers or continued moves higher.
I don't hate Nvidia here. The company has eased my doubts of last quarter, but there are still cloudy, unresolved issues here. I want clarity in this market, and there are too many unclear pieces of the puzzle remaining on Nvidia for me to say buy.